The Board hired an accounting firm (Firm) to perform many of the Treasurer's duties, such as maintaining the accounting records, preparing and processing payroll and disbursement checks, preparing bank reconciliations, and preparing the Treasurer's monthly and annual financial reports. The Treasurer is responsible for the oversight of the Firm and the billing of real property taxes and water and sewer services. The Treasurer was unable to provide adequate oversight of those performing her duties and the Board did not perform an annual audit.

Although the Board adopted budgets that were realistic and supported by revenues, expenditures were consistently and significantly overestimated. In addition, although the Board appropriated more than $690,000 of unexpended surplus funds each year, for a total exceeding $2.1 million over a three-year period to help finance the ensuing year's operations, the District actually used only $266,732 of the fund balance during this period. As a result, the District has accumulated considerable unexpended surplus funds, up to four times the amount allowed by statute. Although the District has developed a multiyear financial plan, the plan does not reduce the excessive unexpended surplus funds in a manner that benefits the taxpayers.

We found the District established adequate internal controls over payroll and personal services. District officials implemented specific procedures to ensure that individuals reported and paid on the payrolls were bona fide employees and, as such, were paid at their approved salaries and wages, and they received only the benefits to which they were entitled. We also determined that the various control procedures over the payroll process that the District had established included adequate supervision and oversight.

The District has an opportunity to save on transportation costs by reducing excess capacity on buses, decreasing the number of spare buses in its fleet and increasing the District's buses-to-mechanics ratio to a more efficient level. By making such changes to improve transportation efficiency, the District could realize up to $654,000 of annual cost savings and as much as $1.4 million in avoided future bus replacement costs. District officials also can improve the efficiency of the Department of Buildings and Grounds by establishing performance measures. The Department has more staff than recommended by the National Center for Educational Statistics. If the Department maintained custodial staffing levels recommended by these industry benchmarks, the District could reduce costs by up to $293,000 annually.

The City did not adopt a comprehensive procurement policy. As a result, City officials and employees did not solicit competitive proposals for five of eight professional services providers who were paid $164,613. City officials also did not have a written agreement with one of eight professional service providers we tested. City officials did not solicit written quotations for eight of 18 purchases tested totaling $73,661. In addition, the City Council did not require the Treasurer to provide written periodic financial reports for use in monitoring City financial operations. Finally, system users were unnecessarily assigned administrative rights and had access to system modules that they did not need to perform their job duties. The City Council did not establish an information breach notification policy or a disaster recovery plan to minimize disruption of operations in the event of a catastrophic event.

Several individuals received compensation from both the Allegany County Industrial Development Agency (ACIDA) and the County including the ACIDA CFO and Director, and the County Planner. There were no written job duties for the ACIDA Director. As such, it was not always clear when he was acting on behalf of the ACIDA or the County. Furthermore, the job description for the CFO does not indicate the normal work hours for that position. It is unclear whether services compensated for by the ACIDA were provided at times other than those for which these individuals were compensated as County employees. In addition, the Board was unable to demonstrate it had adequately evaluated the impact on the ACIDA and its bond holder, the County, before approving a $3.5 million speculative project involving the purchase of land and installation of a water line. Finally, the Board failed to use appropriate evaluation criteria before it approved the construction of a $760,000 facility with the apparent sole function of housing the Allegany County Departments of Aging and Veterans Affairs. There is no authority in General Municipal Law for an IDA to construct a building to be used for County office space.

We commend the Board for their efforts to provide oversight of the financial operations of the Town. We believe that the Finance Committee's monthly review of the records could be improved by comparing the check images to the Board-approved claim vouchers, or to payroll registers, to ensure that the payees and amounts agree. We reviewed 130 disbursements totaling almost $280,000, which included payroll disbursements. We did not find any material discrepancies.

Village officials have not developed any formal IT policies and the Board has not developed a formal disaster recovery plan, instituted breach notification procedures, or adopted procedures for data backup. In addition, the Village's bookkeeper, although not a Village employee, has administrative rights to the Village's financial software. Finally, although audit logs are available through the software, they are not generated and reviewed by Village officials. The Board also has not instituted appropriate internal controls for online banking. The Village uses online banking services with one bank and currently only makes intra-bank transfers between its accounts at this bank. However, the Board was unfamiliar with and unaware of the importance of these types of controls.

The Justice failed to account for all moneys received and the Board did not provide effective oversight of Court operations, resulting in a $2,910 shortage in the Justice's account. The Justice did not prepare monthly bank reconciliations or accountabilities, issue appropriate receipts for all money received, deposit money in a timely manner, file accurate and timely financial reports, maintain an accurate listing of bail, or properly report ticket dispositions to the DMV.

We identified discrepancies totaling $4,800 in the Supervisor's cash receipt records, and found that the Supervisor paid claims totaling $54,000 that had not been reviewed and approved by the Board. The Supervisor also provided inadequate financial information to the Board, and failed to file the Town's annual financial report with the Office of the State Comptroller (OSC), as required. These problems occurred because the Board has not provided appropriate oversight and the Supervisor did not properly segregate financial duties. For example, the Supervisor collected water rents and permit fees instead of having the collections done by the Town Clerk and the recordkeeping by the Supervisor. The Supervisor authorized Town payments, maintained Town financial records, and collected and deposited Town moneys. Finally, because Board members did not request cash receipt and disbursement data or conduct an annual audit of the Supervisor's records, they did not identify the above discrepancies or realize that the Town had not filed its annual report with the OSC.

The Lake Hadlock Dam, which is located in the Lake Hadlock Park District, was under repair from September 2004 to May 2005. On July 2, 2005, the Dam collapsed causing extensive damage to the Dam and the surrounding area. There were two capital projects initiated as a result of the Dam collapse with a combined cost of approximately $6.7 million. One was for the reconstruction of the Dam and the other was for the repair of Goodman Road. We found that the Town properly accounted for the proceeds received and spent on these capital projects.

We found that the Town may have higher payroll costs than necessary because Town officials did not monitor and control these costs. The Town routinely pays supervisors for overtime that may not be necessary because overtime is not pre-approved and actual overtime hours are not recorded. For just one month, the Town paid 15 supervisors who reported arriving prior to their normal work schedule a total of $15,000 in overtime. If earlier starts are actually necessary, the Town could save $179,000 a year in overtime costs by adjusting the arrival times on supervisors' schedules and by controlling overtime use. We also found that the Town allowed employees to maintain leave accrual balances that were much higher than those permitted by contract bargaining agreements. In addition, we found that the Town contracted with 23 attorneys, who were paid a total of $1.9 million during our audit period, without using the request for proposals (RFP) process outlined in the Town's procurement policy. Further, although the Town had written agreements with these attorneys, the agreements did not require that invoices for legal services provide detail about the basis for the amounts charged.

From 2007 to 2011, the City's general fund balance declined by $12.8 million. As of December 31, 2011 the City had a general fund balance deficit of over $11.4 million. This has occurred because the Council adopted budgets that were not based on prior year's actual results of operations. In addition, the City's debt service costs grew by 45 percent for the period and now are 12.9 percent of annual revenue. It appears that the Council was not aware of these negative financial trends because the Council did not require that the Commissioner prepare and present detailed and periodic financial reports to the Council. As a result, the City faces fiscal stress which if it is not addressed could affect the level of services that the City can provide.

District officials did not ensure that District funds were expended in the best interest of taxpayers or as permitted by statute. District officials did not adequately plan or use a competitive process when procuring goods and services for the recent capital improvement project (CIP) with an estimated cost of $80,000. As a result, the District has spent $149,490 on the uncompleted CIP. In addition, services and materials totaling $41,790 were rendered by and paid to a construction company with close ties to the District. Furthermore, renovations to the truck bay for the exclusive use of the members and expenditures totaling $22,010 for a storage building on Department property were not permissible by law. Finally, the Board entered into a poorly written memorandum of understanding (MOU) with the Department, which has caused the District to operate outside its authority.

The Trustees need to improve their monitoring of cash management. The Trustees have not adopted an investment policy, which resulted in excess cash balances of $38,097 that were not covered by the Federal Deposit Insurance Corporation (FDIC) insurance. Additionally, the Trustees did not develop procedures to ensure that deposits were made timely and intact, resulting in cash receipts, totaling $13,322, being deposited anywhere from 11 days to 21 days after receipt. Although we found all deposits to be intact, the failure to deposit Trustee receipts in a timely manner increases the risk that moneys received will not properly accounted for, that moneys could be lost or stolen, or that the Trustees will lose interest that could have been earned if moneys had they been deposited timely.

Town officials need to improve internal controls over cash management. Although the Board implemented a policy to segregate cash functions, the policy was inadequate and did not effectively segregate the Town Clerk's (Clerk's) duties. Deposits in the Clerk's office were not timely or intact (i.e., in the same form as received). Cash collected totaling $1,288 was not deposited and cannot be located by Town officials. Further, there were several instances where supporting documentation was missing and duplicate receipts were not properly maintained. We performed an audit of each of the Town's 15 computers using an audit software application. Users on each of these computers were in the local administrators' group and could therefore install unauthorized software or alter the computer configuration, increasing the risk that Town assets and data may be lost or compromised. Finally, although data is backed up in the Clerk's office and Finance Department, the backups are not taken off-site to a secure location because Town officials have not established backup procedures that would require users to take them off-site.

The Board has not established adequate internal controls over the School’s IT system to ensure the School’s computerized data and assets are safeguarded from internal and external threats.

The Board did not adopt structurally balanced budgets or monitor the budget during the year. Generally, the Board's estimates of surplus fund balance to be appropriated in the budgets exceeded the amounts actually available. As a result, the general fund balance declined by $82,000 from 2008 to 2012. Consequently, the general fund had to borrow money from the highway fund in 2012 so it could pay its obligations. In addition, four of the five Board members did not receive budget status reports during the year. As a result, budget amendments were not made until the last Board meeting of the year, after the over-expenditures had already occurred. The general fund ended 2012 with a cash balance of $15,630.

The Clerk's cash receipts records were unreliable. The Clerk did not make deposits and remit moneys to appropriate agencies in a timely manner. She also inappropriately intermingled $340 in personal funds with her Clerk financial activity to cover a cash shortage. Further, the Clerk did not adequately account for dog licenses issued. These discrepancies occurred because duties within the Clerk's office were not properly segregated and the Board did not provide adequate oversight over her work. In addition, the Board did not adopt a procurement policy and the Highway Superintendent did not routinely obtain quotes prior to purchasing goods and services. The Board did not provide an adequate review of claims prior to approving them for payment, which resulted in over $14,000 in duplicate/over payments to four vendors. Furthermore, Highway Department inventory records for consumables such as fuel and auto parts were not adequate. Because of the Highway Superintendent's lack of controls over the Town's fuel inventories, we could not determine if 5,000 gallons of unaccounted-for fuel, valued at $15,000, was unauthorized usage or if the usage was for appropriate Town purposes and merely not recorded in the records.

The Board did not fulfill its fiscal oversight responsibilities because it did not audit each claim listed on the abstracts. It also did not annually audit, or cause to be audited, the financial records of the Clerk-Treasurer. As a result, the Board does not have adequate assurance that all payments are for valid Village purposes, and it has limited ability to identify and correct errors or irregularities.